In re Coffman

• Decision Date: 28 August 1985
• Docket Number: Bankruptcy No. 83-A-0638,Motion No. 83-A-0243A.
• Citation: 52 BR 667
• Parties: In re Mary Ellen COFFMAN, Debtor. Mary Ellen COFFMAN, Movant, v. Wilson Woodroe COFFMAN, Roger Schlossberg, Trustee, Respondents.
• Court: U.S. Bankruptcy Court — District of Maryland

52 B.R. 667 (1985)

In re Mary Ellen COFFMAN, Debtor Mary Ellen COFFMAN, Movant, v. Wilson Woodroe COFFMAN, Roger Schlossberg, Trustee, Respondents.

Bankruptcy No. 83-A-0638, Motion No. 83-A-0243A.

United States Bankruptcy Court, D. Maryland, at Rockville.

August 28, 1985.

Ralph H. France, II, Hagerstown, Md., for debtor/movant.

Justin N. Scharf, Hagerstown, Md., for respondent Coffman.

Bryan Renehan, Rockville, Md., amicus curiae for debtor/movant.

Bruce Kaufman, Baltimore, Md., amicus curiae for respondent/Coffman.

MEMORANDUM OF DECISION

PAUL MANNES, Bankruptcy Judge.

This matter involves the dischargeability of a debt to a former spouse arising from an award accompanying a Maryland divorce decree. The matter is one of first impression for this court. In view of the importance of the issues to parties who are not parties to this proceeding, amicus curiae were appointed to argue and submit briefs on the issues.¹

STATEMENT OF FACTS

On April 27, 1982, Mary Ellen Coffman (debtor) filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Reform Act of 1978 (the Code). She subsequently filed a motion to avoid lien pursuant to § 522(f)(1) of the Code, which provides for avoidance of a judicial lien to the extent that it impairs an interest in property which the debtor has exempted from the estate. 11 U.S.C. § 522(f)(1). The subject judicial lien arose from an award made pursuant to a Decree of Divorce entered under Md.Cts. & Jud.Proc.Code Ann. § 3-6A-05 between debtor and her spouse, Wilson Woodroe Coffman, on January 3, 1983, in the Circuit Court for Washington County.² The decree included a judgment in favor of debtor's spouse in the amount of $2,445.98, described as follows:

a monetary award in the amount of One Thousand Two Hundred Fifty Dollars ($1,250.00) and an accounting for the contribution of one-half of the mortgage payments and insurance premiums for the marital home owned by the parties as tenants by the entireties for the period from October 1, 1981 to December 31, 1982, in the amount of One Thousand One Hundred Ninety-Five Dollars and Ninety-Eight Cents ($1,195.98); and

IT IS FURTHER ORDERED that alimony and all other relief specifically prayed is hereby denied.

At the hearing on debtor's motion and subsequent cross-motions for summary judgment, counsel agreed that the court would use this proceeding to determine the ultimate issue of dischargeability of the judgment debt under § 523(a)(5)(B) of the Code, which provides:

§ 523. Exceptions to discharge

(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt —

* * * * * *

(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that —

* * * * * *

(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.

ISSUES PRESENTED

The narrow issue before the court is whether either or both elements of the $2,445.98 judgment debt are "for alimony to, maintenance for, or support of" debtor's spouse or child. This court had the opportunity in In re Grimes, 46 B.R. 84, 84-86 (BC Md.1985), to review the interrelationship of § 523(a)(5), § 522(c)(1), and § 522(f)(1). If a judgment lien is fixed on what would otherwise be a nondischargeable debt, the debtor may not avoid such lien.

Debtor argues that since the judgment debt arises from a division of marital property and is unrelated to alimony, maintenance, or support, it is therefore a dischargeable debt. Debtor's spouse argues that the monetary award portion of the judgment was determined in the divorce proceedings to be his sole property from an inheritance during the marriage and as such was "separated out" from the marital estate, pursuant to state law, for return to him. Debtor's spouse further argues that the portion of the judgment described as "an accounting for the contribution of one-half of the mortgage payments and insurance premiums for the marital home" was for sums "paid by him to maintain the family home for the children, being an allowance in the nature of child support" and that "it was to a former spouse for the maintenance and support of himself and his children as an accounting in the family home as the result of a divorce decree."

REVIEW OF LAW

The legislative history of § 523(a)(5) instructs that "what constitutes alimony, maintenance, or support, will be determined under the bankruptcy laws, not State law." H.R. No. 595, 95th Cong., 1st Sess. 364 (1977), U.S.Code Cong. & Admin. News 1978, 5787, 6320, reprinted in 9 Bkr-LEd, LEGISLATIVE HISTORY § 82.17, at 376. The Bankruptcy Code does not define "alimony, maintenance, or support." We therefore turn to the appropriate federal case law. See In re Harrell, 754 F.2d 902, 905 (11th Cir.1985); In re Ploski, 44 B.R. 911, 913 (BC N.H.1984).

The Fourth Circuit addressed the issue of what constitutes a debt for "alimony" in the context of an objection to dischargeability in the leading case of Melichar v. Ost, 661 F.2d 300 (4th Cir.1981), cert. denied, 456 U.S. 927, 102 S.Ct. 1974, 72 L.Ed.2d 442 (1982). While the Melichar case was determined under § 17(a)(7) of the pre-1978 Bankruptcy Act, 11 U.S.C. 35A(7), the rule of decision is controlling. Mr. and Mrs. Melichar had executed a marital settlement agreement providing that Mr. Melichar pay his wife $66,550 by monthly installment over a period of 121 months. The installment period would be shortened to 108 months if Mrs. Melichar remarried; liability would end altogether upon the death of either party at any time. The agreement also provided for division of real and personal property, life insurance, and child support. The parties divorced three months thereafter, Mrs. Melichar remarried the following month, and Mr. Melichar filed his petition in bankruptcy two years later. The former Mrs. Melichar objected to Mr. Melichar being discharged from his obligation under their marital settlement agreement.

After the district court thrice reversed the bankruptcy court's findings and conclusions that the marital settlement agreement contemplated support and maintenance, the matter went before the court of appeals.³ The court of appeals declined to follow the district court's view of the case which was that establishing an intention to pay alimony so as to render the claim nondischargeable required qualifying the agreement under state law as an agreement to pay alimony. Melichar at 303. The court of appeals reversed the district court, concluding that while the classification of the agreement under state law was an important factor,

we do not foreclose the possibility that the agreement may be a hybrid of two means of paying alimony recognized by state law, and the fact that it combines features of both does not automatically destroy the nature of the payments as alimony. The proper test of whether the payments are alimony lies in proof of whether it was the intention of the parties that the payments be for support rather than as a property settlement. Shacter v. Shacter, 467 F.Supp. 64 (D.Md.), aff\'d without published opinion, 610 F.2d 813 (4 Cir.1979); Nichols v. Hensler, 528 F.2d 304 (7 Cir.1976); 3 Collier on Bankruptcy ¶ 523.15, at 523-111 (1981 ed.).

Melichar at 303. Shacter, cited by the court in support of its conclusion, is instructive on other factors relevant to determining the character of payments under marital agreements.

In Shacter, the debtor had entered into a separation agreement to pay his wife a monthly sum "for her support and maintenance" until she died or remarried. 467 F.Supp. 64, 65 (D.Md.1979). On appeal from the bankruptcy court's determination of nondischargeability, the district court viewed debtor's argument as being that the payments required by the separation agreement did not meet the requirements of technical alimony under Maryland law and were therefore in the nature of a property settlement and dischargeable.

The Shacter court rejected the proposition that characterization of the payments under state law determined dischargeability of such payments in bankruptcy. 467 F.Supp. at 66. The court reasoned that it should look to the substance of the obligation and proceeded to examine (1) the terms of the agreement; (2) the periodic nature of the payments; and (3) the circumstances existing at the time of the agreement. The court noted that the terms of the agreement provided that the payments were for "support and maintenance" and that the other factors supported such a finding. Accordingly, the court concluded that "the mere fact that the payments do not meet the requirements for technical alimony under state law does not mean the payments cannot be intended for the support of the wife." Id.

Melichar and Shacter are cases in which the obligation had been memorialized in an agreement between the debtor and the non-debtor spouse. See generally, Annotation, "Obligation under property settlement agreement between parties as dischargeable in bankruptcy," 74 A.L.R.2d 758. These cases give some guidance in determining the intention of the parties with respect to such obligations incurred by virtue of an agreement, but a fresh look is required for determining the dischargeability of court-imposed monetary awards pursuant to the Maryland Marital Property Act. The Act deals with allocating so-called "marital property" between the parties. In dividing marital property in Maryland, the judge is directed to consider the following factors:

§ 8-205. Marital property — Monetary award.

(a) Grant of award. — After the court determines which property is marital property, and the value of the marital property, the court may grant a monetary award as an adjustment of the equities and rights of the parties

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